In general, the insurance industry has done a really good job of confusing the general public about the different types of life insurance. When you break it down and remove all the “bells and whistles,” there are two basic forms of life insurance: Term and Permanent.
Term insurance is a lot like renting a house or an apartment. In the beginning, you and the landlord may agree upon a set price for a set amount of time. Let’s say the contract is for 10 years. All is fine and good for those first 10 years, but what happens at the end of the contract? The landlord may decide to sell the house to a buyer or increase the rent because everything has gone up in price. You may not think the price is equitable anymore. You had a place to live for 10 years, but what are you left with in the end?
Contrary to term insurance, there’s permanent insurance. Permanent insurance is more like buying a house. You own it and you control it. The premium (mortgage payment) is set. Much like building equity in your home, your permanent insurance builds a guaranteed cash value that can be used during your lifetime.
Most of us dream of the day when we can pay off the house and ditch the monthly mortgage payment. Just like paying off your house, your permanent insurance policy can be “paid-up.” When you take a paid-up policy, you get to keep the life insurance coverage on yourself for your beneficiaries, but you can eliminate the premium payment. Permanent insurance gives you options on down the road.
